PBM Transparency: Coming to a Federal Employee Health Plan near You

A Congressional hearing late Tuesday afternoon signaled that, one way or another, changes appear to be coming to the Federal Employees Health Benefits Program (FEHBP) that will result in more oversight of pharmacy benefit managers (PBMs) and savings for patients and taxpayers.

U.S. Rep. Stephen Lynch, Chairman of the House Subcommittee on Federal Workforce, Postal Service and the District of Columbia, called the hearing to consider H.R. 4489, legislation he proposed in January. It would require PBM pass-through to the health plan sponsor of 99% of manufacturer rebates and ban from participation PBMs that have a controlling interest in a drug manufacturer or retail pharmacy chain (i.e., CVS Caremark), among other changes.

“In these economically challenging times, it is unacceptable to ask federal employees and the American taxpayer to put up with some of the irregularities that exists in the pricing and contractual arrangement” of the FEHBP, Lynch said. “In this day and age, when every effort is being made to reduce federal spending and to find money to fund healthcare reform and other domestic policy priorities, the level of ambiguity around costs and drug prices under the [FEHBP] is appalling and must change.”

U.S. Reps. Gerald Connolly, Elijah Cummings, Eleanor Holmes Norton, and Anthony Weiner, also questioned the current FEHBP arrangement, administered primarily by CVS Caremark and ultimately overseen by the Office of Personnel Management (OPM). FEHBP reportedly pays 15-45% more than other federal programs for prescription drugs.

NCPA was represented at the hearing by Richard Beck, Executive Director of the Texas Pharmacy Business Council. Richard summarized two Texas studies that made the case for greater PBM transparency. The ensuing changes led the Texas State Employees Retirement System to forecast savings of $260 million over four years, a figure he labeled conservative.

While expressing support for H.R. 4489 generally, Richard urged lawmakers to ensure adequate pharmacy reimbursement. The average manufacturer price-based formula in the legislation would not even cover a pharmacy’s acquisition costs, thereby likely reducing the number of pharmacy options available to patients in the program.

The call for PBM transparency reforms, also included in House and Senate health reform proposals, was echoed by a parade of consumer and federal labor organizations, including Change to Win, the American Federation of Government Employees, the National Treasury Employees Union and the U.S. Public Interest Research Group (PIRG). Some said FEHBP premiums are rising so fast that federal workers are increasingly finding the program unaffordable.

Change to Win’s Jasmin Weaver recapped the organization’s recent study finding that “for the vast majority of the drugs on CVS’s generic discount list, a person with no insurance who joins its discount program pays less than a federal employee and the government together pay.”

For its part, OPM management appeared to agree that the PBM status quo is untenable. On the eve of the hearing, the agency issued a new “carrier letter” in an effort to demonstrate its commitment to achieve some progress toward greater PBM transparency.

OPM Inspector General Patrick McFarland, a key witness at the subcommittee’s June 2009 hearing, reiterated Tuesday the “deeply troubling” nature of non-transparent PBMs: “In our estimation, the single most important FEHBP issue which OPM must resolve is the fact that it is dealing with PBMs from a perspective in which the cost structures of the PBMs are utterly nontransparent. This means that there is no objective basis to determine whether the terms being offered by a PBM represent an advantageous arrangement. From our perspective as the agency’s audit component, we find the absence of transparency to be deeply troubling.”

The next steps for H.R. 4489 aren’t entirely clear at this point. But already the subcommittee may have succeeded in moving OPM toward implementing the increasingly popular PBM transparency concepts into the FEHBP.